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Enterprise wireless: Calculating business spending limits

Enterprise wireless spending is directly related to IT spending and presents an opportunity for service providers that know how to determine estimates for individual companies. Nemertes Research discusses the metrics that can help service providers estimate sales opportunities.

Telecom service providers typically think in terms of capturing consumer "share of wallet" when estimating sales potential and revenue. In a market as dynamic as wireless, this is a hard thing to do.

Nemertes has found that wireless spending, expense and capital tends to be about 0.04% of IT spending.
The problem lies with the speed. Wireless 2.5G data services are evolving quickly to 3G and beyond to pre- 4G. The kinds of applications that can ride such data rates are also in a state of flux. Estimating the demand for wireless services in such an environment can be like throwing a dart at a dartboard.

Then there is enterprise sales potential. So how big is the enterprise wallet for wireless? One way to estimate is to determine what enterprises are spending now on wireless services and applications that ride those services. Nemertes Research has done exactly this, and, in the course of two ground-breaking studies -- Advanced Communications Services and Unified Communications and Collaboration -- has developed several metrics that give some insight into what enterprises are willing to spend in order to integrate wireless into their IT infrastructure.

Enterprise wireless spending correlates to IT spending
Nemertes finds that wireless spending is closely correlated to IT spending generally. The reason for this is simple -- wireless is becoming a key method for enabling mobile workers, both on and off enterprise campuses.

Nemertes has found that wireless spending, expense and capital tends to be about 4% of IT spending. For mobile services, the median spend across all demographics tends to be $1,000 per mobile data user per year. And as IT spending increases, wireless spending increases proportionally.

In addition, since IT budgets tend to be strongly correlated to annual revenue, it is possible to estimate wireless spend simply by knowing the company's revenue.

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Nemertes has found that wireless service spending represents approximately 0.04% of annual revenue.

This means that an accurate estimate of how much an enterprise will spend on wireless services can be made simply by looking at its IT spending or by looking at its annual revenues. These are easy to determine -- simply ask the business or check financial reports.

Understanding service provider implications
For carriers, the implications are profound. Regardless of the size of the company, knowing the IT budget also tells you a reasonable amount of wireless spending for that company. Further, it indicates the likely point of resistance when selling services. If a company is spending less than average, it will probably be open to increased spending on wireless services. If it is spending more than average, the company is likely to be looking for ways to reduce spending, either through consolidation of service offerings or better pricing. Either way, there is an opportunity for selling competitive offerings.

Also, Nemertes' research has disclosed that mobility planning is now becoming a part of larger issues, such as unified communications planning. As wireless becomes a central feature of unified communications architectures of the future, wireless spending is likely to increase as a proportion of IT spending. Increasingly, mobility spending will be driven by the need to integrate a wireless data environment into a fixed data environment.

The opportunity for carriers is clear -- wireless is no longer an optional expenditure for enterprises. Wireless mobility is now firmly entrenched in IT budgets and is directly proportional to revenue. Carriers that want to estimate the potential market for their wireless service offerings need to start with their customers' IT budget and revenue figures, then factor in the impact of unified communications planning. This is an easy way to estimate the total wallet for wireless. Once carriers understand the total wallet, it is up to them to design services that maximize their opportunity to capture as much of that potential spend as possible.

About the author: Mike Jude is a research analyst with Nemertes Research, where he advises enterprises, carriers and vendors, conducts research and delivers strategic seminars. His area of expertise at Nemertes is wireless technologies and mobility strategies. Jude brings 30 years of experience in technology management in manufacturing, wide-area network design, intellectual-property management and public policy. Jude holds degrees in electrical engineering and engineering management respectively, and a Ph.D. in decision analysis. He is the co-author of The Case for Virtual Business Processes: Reduce Costs, Improve Efficiencies and Focus on You Core Business, Cisco Press, 2003.

This was last published in October 2008

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